What are the top ETFs to watch?
We outline ten areas that investors may want to gain exposure to in 2020 and explain why ETFs are the best way to get it.
Why invest in ETFs in 2020?
Exchange traded funds, better known as ETFs, are baskets of an asset class – from equities to commodities – that you can invest in to gain broad exposure to a specific part of the market. At IG, we offer thousands of different ETFs to suit every investor regardless whether they are looking for a way to invest in indices, commodities, forex, a specific type of equity or sector, or even a particular country.
They are relatively easy to trade and are low risk as you invest in a group of assets rather than placing all your bets behind one or a few instruments. For example, an investor that wants to gain exposure to the FTSE 100 can opt for an ETF like the iShares Core FTSE 100 UCITS ETF rather than handpicking a few selected stocks. An IG Smart Portfolio makes this even easier as it provides you with a fully managed, globally diversified portfolio, built exclusively with BlackRock’s market-leading iShares ETFs. Major ETFs, particularly those from the biggest providers like iShares, Vanguard and Invesco, are also known for offering good liquidity, which means lower spreads.
ETFs are also tax efficient and cost effective. For example, UK investors that put money into ETFs using an IG share dealing account pay as little as £5 in commission per trade, and those that invest using an IG ISA or SIPP are not required to pay capital gains or income tax on their investments.
All-in-all, ETFs give investors a simple and low-cost way to diversify their portfolio any way they want. Some target growth while others pay dividends, meaning they are suitable for both growth and income investors.
Top ETFs for investors
Below is a list of ten areas that investors should consider gaining exposure to in 2020 and suggestions of ETFs that fit the bill.
Read more on how to choose the right ETF
ETFs can be a great way to add some consistent dividend payments to your portfolio. Most ETFs, particularly those that invest in equities, redistribute any dividends that are paid by its investments on a pro-rata basis each quarter or twice a year (although some reinvest these sums). If an ETF sources income from several dividend-paying stocks, then distributions to shareholders will be more reliable.
iShares UK Dividend UCITS ETF: this ETF offers exposure to the higher-yielding dividend stocks that are included in the FTSE 350, meaning its portfolio is solely made up of UK stocks. It has 50 holdings, the largest of which are Persimmon, Hammerson, IAG, Legal & General and Standard Life Aberdeen. This ETF has generated a return of 23.5% over the past 12 months.
Dynamic iShares Active Global Dividend ETF: this BlackRock ETF aims to provide long-term capital growth through investing in a portfolio of equities that pay (or are soon expected to pay) dividends. It includes companies from around the world but over 70% of its holdings are based in the US. Its top five holdings include Keysight Technologies, Lonza Group, Microsoft, Sartorius Stedim Biotech and Mastercard. This ETF has generated a return of over 39% in the last 12 months.
Principal Active Global Dividend Income ETF: this ETF also invests in dividend payers from around the world, but takes a contrarian view in order to ‘avoid Wall Street’s herd mentality’. Its top five holdings are Taiwan Semiconductor, Microsoft, Apple, JPMorgan Chase and Roche. This ETF has generated a return of 26.4% over the past 12 months.
Most forecasts regarding oil for 2020 suggest prices will largely stay in and around the current price, which for Brent sits at $69 and for West Texas Intermediate (WTI) $59. According to the International Energy Agency, supply is expected to outstrip demand for the first half of the year before levelling out in the second. However, there are several potential trigger moments that could send prices higher this year. The main one is the revival of unrest in the Middle East following rising tensions between the US and Iran, while the US presidential election could also shake things up. Any sudden changes in production from OPEC, which has been cutting output, or in US shale production could also heavily influence the price in 2020.
WisdomTree Brent Crude Oil ETC: this tracks the Bloomberg Brent Crude Subindex, which is designed to reflect the movement in the price of the Brent Crude futures contracts. This has generated a return of over 34% in the past 12 months.
WisdomTree WTI Crude Oil ETC: this does the same but tracks the price of WTI instead of Brent. WTI usually trades at a discount to Brent, but the size of this discount can vary. Right now, there is almost a $10 price difference in a barrel of Brent to WTI, but some forecasts suggest this could narrow this year, up to just $5 difference. This has generated a return of over 33% in the past 12 months.
United States Brent Oil Fund: this fund aims to reflect the daily changes in the price of Brent, meaning it focuses on the spot price of oil rather than futures contracts like the two options listed above. This fund has generated a return of 37.7% over the past 12 months.
iShares MSCI Global Energy Producers ETF: rather than directly tracking the performance of oil prices, this ETF is a basket of securities comprised of oil and gas producers and explorers from around the world. Its top five holdings are Exxon Mobil, Chevron, Total, BP and Shell. This ETF has returned 8.8% to investors over the past 12 months.
Gold is regarded as a safe haven asset that attracts investment when uncertainty hits the market. The more volatile the market, the more demand there is for gold. The current geopolitical uncertainty that plagues the market - everything from trade wars to Brexit – has supported the price of gold, which is currently trading at levels not seen since 2013 at around $1545 per ounce. Still, some forecasts suggest this upward trend could continue this year.
Read more about gold ETFs and how do you buy them
SPDR Gold Shares: this is the largest physically backed gold ETF in the world and provides exposure to the price of gold bullion by investing directly in physical gold. This has returned over 31% to investors in the past 12 months.
iShares MSCI Global Gold Miners ETF: alternatively, you can opt for an ETF like this one that tracks the performance of a basket of equities comprised of global gold producers including the likes of Newmont, Barrick Gold, Newcrest Mining, AngloGold Ashanti and Agnico Eagle Mines. This ETF has generated a return of over 50% in the past 12 months.
Another sector that is set to benefit from ongoing geopolitical tensions in 2020 is defence. For Western countries, news that countries like the UK and the US intend to at least maintain their spending on defence at current levels (or increase it) is good news for defence stocks. Aerospace, which focuses on commercial airplanes and is often bundled together with defence stocks, has not fared so well as more airlines go bust and major players like Boeing recover from the fatal fiascos involving its aircraft. Yet the picture is expected to improve this year and any slack should be picked up by the defence industry.
Invesco Aerospace and Defence ETF: this ETF tracks the SPADE Defense Index that follows stocks that are involved in the development, manufacturing, operations and support of US defence, homeland security and aerospace operations. Its top five holdings are Lockheed Martin, Honeywell International, United Technologies, Boeing and Northrop Grumman. This ETF has generated a return of almost 40% over the last 12 months.
Technology stocks are some of the most in demand in the world. In fact, over half of the top ten most valuable publicly-listed companies in the world are classed as tech stocks, with Apple, Microsoft, Amazon, Alphabet, Facebook and Alibaba all making the cut. Companies of all creeds are increasingly relying on technology to push their businesses into the modern age and tech ETFs can be a great way to gain broad exposure to the sector.
iShares Global Tech ETF: this tracks the performance of a group of global equities involved in electronics, computer software and hardware, and other IT firms. The largest holdings are made up of some market-leading companies such as Apple, Microsoft, Visa, Mastercard and Samsung. This ETF has returned 47.6% over the past 12 months.
New tech ETFs
For those after a bit more excitement, there are plenty of ETFs that focus on specific areas of technology – including breakthrough areas. This means investors can easily gain exposure to fast-growing and revolutionary technologies such as artificial intelligence (AI) or quantum computing. Although these types of technologies are still yet to mature, this is a good reason to gain exposure now to benefit from the astronomic growth some of these sectors are experiencing.
iShares Automation and Robot ETF: tracks the performance of companies involved in developing technology, predominantly automation and robotics, in both developed and emerging economies. While its portfolio includes well-known firms like NVIDIA, it tracks a wide array of less well-known stocks like Lastertec, Advantest, Cloudera and Inphi. It has generated a return of 40.7% in the last 12 months.
WisdomTree Artificial Intelligence ETF: this tracks the NASDAQ CTA Artificial Intelligence Index, which is comprised of stocks actively engaged in AI or are trying to use it to capitalise on business opportunities. Its top five holdings are in Blue Prism, Nuance Communications, Pegasystems, ServiceNow and AtoS. This ETF has made a return of 47.7% over the past 12 months.
Global X Internet of Things ETF: this ETF gives you exposure to companies looking to benefit from the growing popularity of the Internet-of-Things (IoT), which is set to propel higher thanks to other technological breakthroughs such as the rollout of 5G and faster fibre optic broadband. This includes the development and manufacturing of semiconductors and sensors, tech for connected cars, integrated products, and applications serving smart grids and homes. Its benchmark index is the Indxx Global Internet of Things Thematic Index. The ETF has booked a return of 47.5% in the last 12 months.
Defiance Quantum ETF: this ETF provides exposure to quantum computing, tracking stocks such as Cloudera, Maxar Technologies, Cirrus Logic, Ultra Clean Holdings and STMicroelectronics. Its benchmark is the BlueStar Quantum Computing and Machine Learning Index. The ETF has made a return of 48.2% in the last 12 months.
There is arguably no commodity more important than water, and yet it isn’t treated as a commodity like oil or gold by financial markets. This means exposure lies in equities that own water resources or are in charge of making the world’s water usage more efficient. Water utility stocks are known for their consistent and reliable businesses alongside steady returns and choosing an ETF can bolster these qualities.
Lyxor World Water UCITS ETF: this ETF tracks the world’s 30 largest companies operating in the water infrastructure, utilities or treatment sectors, and who derive at least 40% of their revenue from water-related activities. Its top five holdings are in American Water Works, Geberit, Ferguson, XYLEM and Masco. This ETF has booked returns of 35.8% in the last 12 months.
Invesco Global Water ETF: meanwhile, this ETF is based on the Nasdaq OMX Global Water Index and follows the performance of global stocks that help conserve and purify water for homes, businesses and industries. Its top five holdings are Danaher, Geberit, Ecolab, Ferguson and Pentair. This ETF has generated returns of more than 35% over the past year.
Clean energy ETFs
Attention on climate change is reaching new heights around the world, driven by recent major natural disasters such as the Australian wildfires and extreme flooding in Indonesia. There is no doubt that the world is moving toward cleaner energy to tackle the problems, making it a low-risk, high-growth sector for investors.
Invesco WilderHill Clean Energy ETF: this ETF focuses on clean energy stocks in the US, spanning makers of electric and autonomous vehicles, firms developing hydrogen power systems and companies that help manage smart grids. Its top five holdings are in NIO, Ballard Power Systems, Bloom Energy, Plug Power and Tesla. This ETF has booked returns of 61.9% in the last year.
ALPS Clean Energy ETF: this ETF is similar but has a greater blend of renewable energy companies in its top holdings and a slightly broader focus over North America rather than the US. Its top holdings include Tesla, Enphase Energy, Universal Display, Cree and First Solar. The ETF has generated returns of 51.5% in the past 12 months.
Interest in cryptocurrencies seems to have passed its peak, but 2020 is a big year considering the most popular cryptocurrency, bitcoin, will experience its latest ‘halving’ event. Currently, 12.5 new bitcoin can be mined every ten minutes, but this will fall to just 6.25 after the halving event in May 2020. Ultimately, this means less bitcoin will be entering the market, which should support prices as it did when the last halving event happened. Bitcoin and other cryptocurrencies will remain volatile, but 2020 provides more upside potential than previous years.
Grayscale Bitcoin Trust: this ETF solely derives its value from the price of bitcoin and was the first security-like instrument to do so. The ETF has generated returns of 87.7% in the last year alone.
Private equity ETFs
One area that investors find it notoriously hard to gain exposure to is private equity, which refers to businesses that are not publicly listed. Therefore, ETFs that track private equity can present a unique opportunity for investors, especially if they have concerns over the growth prospects of publicly-traded companies. Private equity is currently flush with cash and continue to buy out publicly-traded companies to take them private – making the sector an appealing space in 2020.
iShares Listed Private Equity UCITS ETF: this ETF offers exposure to private equity from North America, Europe and Asia, and to publicly traded companies that themselves have great exposure to the space. Its top five holdings include Blackstone Group, KKR, Partners Group, Brookfield Asset Management and INC. The ETF has generated returns of 44.7% in the last 12 months.
Invesco Global Listed Private Equity ETF: this ETF invests in firms whose principal business is to invest in, lend capital to or provide services to privately held companies, including publicly traded companies like turnaround specialist Melrose. Other major holdings include 3i Group, Fosun International and The Carlyle Group. It has made a return of 34.8% in the last 12 months.
Find more ETFs with the IG ETF screener
We have established that there is a suitable ETF for every investor. It is just a case of finding one that has the right exposure, offers good liquidity and has either solid growth prospects or reliable returns (or both).
The IG ETF screener is the perfect place to find an ETF to suit you. It allows you to filter through the thousands of ETFs available, including sorting the ones that are eligible for ISA accounts. You can also filter them to match a specific asset class or country. Plus, if there’s an ETF you’d like to invest in that’s not currently available, simply email firstname.lastname@example.org or call 0800 409 6789 to request a new product.
You can access the IG ETF screener here.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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